By Greg Roumeliotis
(Reuters) – United Technologies Corp is nearing a deal to merge its aerospace business with U.S. defence contractor Raytheon Co and form a new company worth well over $100 billion, a person familiar with the matter said on Saturday.
Through the merger, United Technologies and Raytheon are seeking to pool resources serving the commercial and defence aerospace industries. United Technologies provides commercial plane makers with equipment such as electronics and communications equipment, whereas Raytheon is a vendor primarily to the U.S. government for equipment in military aircraft and missiles.
The deal would be structured as an all-stock merger of equals because United Technologies would separately spin off its Carrier air conditioning business and Otis elevator division, as it has previously announced it would do, the source said.
If the negotiations between United Technologies and Raytheon are completed successfully, a deal could be announced as early as Monday, the source said, asking not to be identified because the matter is confidential.
United Technologies declined to comment, while Raytheon did not immediately respond to a request for comment.
United Technologies has a market capitalisation of $114 billion (£89.5 billion), but without Carrier and Otis, its value could be less than $60 billion, bringing it closer to Raytheon’s market capitalisation of $52 billion.
The Wall Street Journal first reported on the potential deal, stating that United Technologies Chief Executive Greg Hayes is expected to lead the newly created company, while Raytheon CEO Thomas Kennedy would be chairman.
United Technologies has said it is on track to separate Carrier and Otis in the first half of 2020, leaving the company focused on its aerospace business through its acquisition of Rockwell Collins, which was completed in 2018, and the Pratt & Whitney engines business.
The deal with Raytheon could put pressure on General Electric Co, which also competes with United Technologies for commercial aerospace clients, to seek scale.
Raytheon, maker of the Tomahawk and the Patriot missile systems, and other U.S. weapons makers are expected to benefit from strong global demand for fighter jets and munitions as well as higher U.S. defence spending in fiscal 2020, much driven by U.S. President Donald Trump’s administration.
However, the deal with United Technologies would allow Raytheon to expand into commercial aviation, which does not rely on government spending like the defence sector.
(Reporting by Greg Roumeliotis in New York.; Additional reporting by Rama Venkat in Bengaluru; Editing by Leslie Adler and Meredith Mazzilli)